10-QPeriod: Q3 FY2008

Merck & Co., Inc. Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 29, 2008For Securities:MRK

Summary

Merck & Co., Inc. (MRK) filed its 10-Q report for the period ending September 29, 2008, reflecting the financial performance of Schering-Plough Corporation. The company reported net sales of $4.6 billion for the third quarter of 2008, a significant increase driven by the acquisition of Organon BioSciences N.V. (OBS) in late 2007. However, net income available to common shareholders decreased to $551 million from $713 million in the same period last year, primarily due to purchase accounting adjustments related to the OBS acquisition and increased interest expenses. The company's financial results were impacted by the integration of OBS, leading to higher operating expenses but also contributing to substantial sales growth. The company also noted the ongoing challenges and scrutiny surrounding the ENHANCE clinical trial for its cholesterol franchise products, VYTORIN and ZETIA, which has led to a decline in U.S. sales for these products. Despite these challenges, Schering-Plough is implementing a Productivity Transformation Program (PTP) aimed at cost reduction and efficiency improvements.

Financial Highlights

22 data points
Beta

Revenue

$4.58B

62.0% Gross Margin

Net Income

$614.00M

13.4% Net Margin

EPS (Diluted)

$0.35

Cash & Equivalents

$3.16B

Free Cash Flow

$1.19B

Financial Statements
Beta
Revenue$4.58B
Cost of Revenue$1.74B
Gross Profit$2.84B
R&D Expenses$893.00M
SG&A Expenses$1.66B
Net Income$614.00M
EPS (Basic)$0.35
EPS (Diluted)$0.35

Key Highlights

  • 1Net sales for Q3 2008 increased to $4.6 billion, largely due to the acquisition of Organon BioSciences N.V. (OBS).
  • 2Net income available to common shareholders decreased to $551 million in Q3 2008 from $713 million in Q3 2007, impacted by acquisition-related costs and increased interest expense.
  • 3The company is undergoing integration activities for the OBS acquisition, leading to special and acquisition-related charges.
  • 4Sales of the cholesterol franchise (VYTORIN and ZETIA) in the U.S. declined due to scrutiny of the ENHANCE clinical trial results.
  • 5Schering-Plough initiated a Productivity Transformation Program (PTP) targeting $1.5 billion in annualized savings by 2012.
  • 6Research and development expenses increased significantly, reflecting higher spending for clinical trials and integration of OBS.
  • 7The company reported a U.S. Net Operating Loss (NOL) carryforward of approximately $1.8 billion as of 2007, with a valuation allowance maintained against U.S. deferred tax assets.

Frequently Asked Questions

The primary driver for the significant increase in net sales to $4.6 billion in the third quarter of 2008 was the inclusion of sales from the acquired Organon BioSciences N.V. (OBS) business, which was integrated into Schering-Plough's operations following its acquisition in November 2007.

Net income available to common shareholders decreased to $551 million in Q3 2008 from $713 million in Q3 2007. This decline was mainly due to purchase accounting adjustments related to the OBS acquisition, which included significant amortization of acquired intangible assets and increased depreciation, as well as higher interest expenses incurred from debt issued to finance the acquisition.

The ENHANCE clinical trial results and the subsequent scrutiny and media attention have negatively impacted the sales of the cholesterol franchise products, VYTORIN and ZETIA, particularly in the U.S. The company reported a significant decline in U.S. sales for these products and noted that this trend is expected to continue, impacting equity income from the joint venture with Merck. This issue has also led to governmental inquiries and litigation.

The Productivity Transformation Program (PTP) is a strategic initiative launched in April 2008, which includes the ongoing integration of OBS. Its primary goal is to create a leaner and stronger company by reducing and avoiding costs, and increasing productivity. The program targets annualized savings of $1.5 billion by 2012.